Iceland has become the first country to see its government fall as a result of the global credit crisis. A tragedy of excess has found its way into the heart of the democratic process.

Of course in a case such as this the ending barely surprises. In fact we never seem to be surprised at how excess and gluttony ends in tears. So perhaps its normal like a child who has too much ice cream, sweets or cakes. We know the ending but somehow stand by and watch because ultimately the child has to learn.

Nothing much really changes though.

The financial warriors of the ice nation rampaged through the European bazaars picking up companies like confetti. A sad tale signifying what? Same old, same old.

Th reality is that we always succumb to the bubble. It’s in our nature, it’s part of our make-up: a relentless and cored belief that somehow it’s all going to work out and we will have something for nothing.

And even in the deepest mess that is the US financial system crazy stories still appear. John Thain and his $40k or whatever toilet. Nice.

Nothing is new. Nothing has changed. It’s just bigger and makes a lot more noise.

As Frank Rich mused on Obama and the End of the Gilded Age,

He spoke of those at the economic pinnacle who embraced greed and irresponsibility as well as the rest of us who collaborated in our “collective failure to make hard choices.” He branded as sub-American those who “prefer leisure over work or seek only the pleasures of riches and fame.” And he wasn’t just asking Paris Hilton “to set aside childish things.” As Linda Hirshman astutely pointed out on The New Republic’s Web site, even Obama’s opening salutation — “My fellow citizens,” not “fellow Americans” — invoked the civic responsibilities we’ve misplaced en masse.

Let’s face it we all want to make loadsamoney……on our houses, investments, crazy schemes…..but the truth is it’s just a facade. But like Versailles it will linger on in our minds for years to come.

Soros has been banging on about his new theory on why markets tend towards bubbles. Well it’s not a new theory as he’s been going on about it for a long time. In fact he’s made plenty of dough out of this approach for many years. But so has Warren Buffett so what’s the difference?

Well his mani point is that markets do not tend towards equilibrium but can be quite extreme in their pricing. I completely agree with this. But do they alwats revert to an equilibrium point? I think so but unfortunately for many it’s like an elastic band. It either rebounds on you causing a sharp pain or actually complete explodes.

This leads us to the greatest maxim of trading and investing: buy low, sell high.

The best traders are those who are completely detached from the instruments they trade. The ego is removed and there is no emotional investment about being right. But markets move on emotion of crowds since that is what the market is. The market can also be seen as a system in which intentionality is the main driver. Yes the fundamentals (price, yield, forecasts) play an important part in determining a basic price but it is the intention of the market, whether to buy or sell, that really drives the price.

So stock markets happily trade a twice their preceived fair value earnings. Currencies happily trade at a huge premium or discount to perceived fair value. Why does this happen? It’s simply the collective outcome of countless intentions.

And many fortunes have been lost betting against the wisdom of the crowd.

Soros suggests regulators have a part to play here in smoothing or preventing bubbles. He says that the control of the money supply itself is not enough but that credit conditions need to be managed. In essence this is the same thing depending on how you view the money supply.

He thinks margin and capital requirements for banks should be used to make credit less or more available.

He’s right to a point. But he missed the real problem which is the creation of the money supply by the banks.

Banks control both the money supply and the supply of credit . How? Well nearly all money is credit.

Now there’s something for Geroge to get his teeth into.